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'Twilight' Studio Summit Looking to Raise $800 Million in Refinancing

Ratings agencies assign the company's debt a stable outlook, citing the vampire franchise, but also say the firm needs to prove that it can produce additional hits.

NEW YORK – Summit Entertainment is looking to raise $800 million in debt to repay existing debt while improving its credit terms, finance productions and pay a special dividend to its investors, which include film company Participant Media..

Credit agencies on Wednesday assigned ratings to the Summit debt that indicate some longer-term risks and vulnerabilities. They particularly expressed confidence in the company’s financial outlook as long as the Twilight franchise throws off money, while emphasizing that they want to see proof that it will be able to create additional hits beyond the series.

Credit ratings firm Moody's Investors Service assigned a stable outlook to privately-held Summit as it issued its first-ever public ratings for the film company as did Standard & Poor's later in the day.

As a risk for the studio, Moody’s cited the “inherent high risk associated with the film business and the company's dependence on new film production, recognizing its modest library portfolio size.”

But it also highlighted Twilight as a key near-term positive. “This [risk] is partially mitigated by the success of the Twilight franchise and significant expected near term cash flows from the last two sequels in the series over the next three years,” Moody’s said. “Nevertheless, we remain cautious about the sustainability of strong credit metrics beyond 2013, given the end of the Twilight franchise, uncertainty about a replacement franchise and the volatile nature of the company's business.”

Standard & Poor's credit analyst Deborah Kinzer also cautioned that Summit's risk factors include a "short operating track record as a film producer, likely reliance on one film franchise for the majority of revenue over at least the next three years and an aggressive financial policy."

Summit plans to raise a $600 million seven-year senior secured term loan and a $200 million five-year senior secured revolving credit facility.

Moody's assigned a B1 rating to that debt. I also assigned Summit a B1 corporate family rating and a B2 probability-of-default rating.

S&P assigned a preliminary B rating to the company's debt.

Summit expects to use proceeds to retire existing debt and pay transaction costs, with the rest going to working capital needs and general corporate purposes, including the funding new film productions, and a special payout to its investors.